Chipotle IPO gains 100%

First triple-digit rise in more than five years

By

SteveGelsi

NEW YORK (MarketWatch) -- McDonald's spinoff Chipotle Mexican Grill Inc. rolled into the history books Thursday as its initial public offering rose 100% to become the biggest opening-day gainer in a U.S.-based deal in more than five years.

Tempting investors with its organic-ingredients-packed burritos as much as its growth to nearly 500 restaurants since its founding in 1993, Chipotle shares
CMG, -0.69%
ended their first day of trading at $44 a share, up exactly twofold from its $22 price.

The performance marks the best opening-day gain by a U.S.-based new issue since Transmeta
TMTA
rang up triple-digit gains in late 2000, according to Thomson Financial. Chipotle also enjoyed the second-best opening day for a restaurant-chain deal, trailing only the 143% gain by Boston Chicken -- since renamed Boston Market and itself a McDonald's subsidiary since 2000 -- in 1993.

The Nov. 18 IPO from Under Armour
UARM
rose more than 100% in the course of its Day 1, but it ended that inaugural session with a gain of 92%

Chipotle raised $173 million by offering 7.88 million shares priced above its $18-to-$20 price range. The Denver-based restaurant chain bumped up its price Monday from a previously forecast range of $15.50 to $17.50 a share as investors piled on to the deal.

Morgan Stanley and SG Cowen led the offering.

'Quality for the masses'

The company's founder and chief executive, 40-year-old Steve Ells, who he's "happy there's a lot of excitement" about his company, added that it's time to go back to "bringing quality fast food to the masses" now that he's taken Chipotle public.

Investors on the IPO's road show connected with Chipotle's mission to cook up fresh food such as free-range pork in open kitchens with counter service.

Ells referred a question over whether McDonald's would hold on to its controlling stake in the firm to his chain's corporate parent.

The IPO "certainly is impressive, but it's time to get back to business here at Chipotle," he said. "We're focusing on not only getting high-quality ingredients but hiring the very best managers to run our stores." Listen to interview with Steve Ells.

Chipotle said it plans to use proceeds from the offering to pay down a $30 million line of credit from McDonald's
MCD, -0.64%
and to shore up its own long-term capital.

The company posted net income of $4 million on sales of $470.7 million in 2004. Average store sales grew from $1.06 million in 2002 to $14 million for the 12-month period ended Sept. 30.

Chipotle sold 6.06 million shares in the IPO, and McDonald's sold 1.82 million.

Investors queued up for the offering based partially on optimism over the growth of the fast-casual segment, now totaling $7 billion and considered the fastest-growing category in the restaurant industry, with a projected five-year compound annual growth rate of at least 11%.

"Based on its robust market opportunities, impressive same-store-sales growth and beneficial relationships with McDonald's, coupled with the momentum behind the restaurant group, we believe this deal is spicy hot," Renaissance Capital said in its IPO of the week column. See full column.

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